Any shock that the US receives, internal or external, will negatively affect the macroeconomic stability of most of the region.
The regions of Latin America and the Caribbean would be the most vulnerable to a recession in the US economy, according to the risk rating agency, Fitch Ratings. The entity also foresees a slight recession in the United States from the second quarter of 2023.
In the report “The vulnerabilities of Latin America and the Caribbean in the face of a recession in the United States”, it is pointed out that these regions are the most likely to suffer from the slowdown in the US economy, not only because of their geographical proximity but also because of their high degree of interaction and dependence on international trade.
Fitch Ratings’ Report Highlights
Fitch cut its US growth forecast for 2023 to 0.5%. The entity also foresees a slight recession in the United States, starting in the second quarter of 2023. Fitch also considers that economic cycles and policy decisions in the United States are highly correlated with those of Latin America and the Caribbean.
Specifically, the report indicates that the main transmission channels to Latin America and the Caribbean are trade, remittances, tourism, and the prices of raw materials.
The report acknowledges that the effect will not be the same in all countries. At the regional level, the different economic characteristics of the countries will allow the impact to “vary considerably”. The most direct case will be that of Mexico, a country in which the lower external demand of the United States will negatively affect its exports, creating the risk of a trade deficit.
In the case of Central America, a large part of its exports are demanded by the United States; however, these countries have greater diversity, and could even, ultimately, resort to internal trade between its own members.
The greatest weakening for the countries of Central and South America and the Caribbean would come from a fierce reduction in remittances and tourist income. Speaking of South America specifically, the region has an additional “invisible problem”, and that is that many of them, such as Chile, Uruguay, and Argentina, are carrying out monetary policy measures that could even accentuate the effects of a recession in the United States economy.
General Macroeconomic Outlook
Fitch Ratings cut growth forecasts sharply and broadly since June’s Global Economic Outlook (GEO). World GDP is expected to grow by 2.4% in 2022, revised down by 0.5pp, and just 1.7% in 2023, down by 1.0pp.
In the case of the Eurozone and the United Kingdom, it is predicted that they will enter a recession at the end of this year. Seconding the United States, a country that would suffer a mild recession in mid-2023.
By Audy Castaneda
